Continuing with the question of how well or poorly the cellular operators are doing financially; it’s time to put Jazz (which carries the legal name “Pakistan Mobile Communications Limited”) under the spotlight. (For a review of Telenor and Ufone, read: “How are telco’s doing?” published May 2, 2019).
Latest results published by Veon Inc., which is Jazz’s evolved parent organisation, show that the top-ranked cellular operator in Pakistan had growth figures earlier this year that outperformed other Veon subsidiaries in Russia, Algeria, Bangladesh, Ukraine and Uzbekistan. Yet, a weakening rupee marred Jazz’s otherwise stellar operating performance for the bosses sitting at the Amsterdam HQ.
Accounting for 17 percent of Veon’s top line, Jazz saw its revenues grow 24 percent year-on-year to reach Rs51 billion in the Jan-Mar quarter. This impressive jump came on the back of strong growth in both subscription and usage of data services and mobile financial services. Compared to March 2018, four million more data customers existed in March 2019, taking the overall subscription tally to 58.3 million. Monthly average revenue per user (ARPU) grew 17 percent year-on-year to reach Rs272 in 1QCY19.
Jazz’s Ebitda also expanded in the period, by a third, to reach Rs26 billion. The sponsors, however, may have little reason to cheer; thanks to the shellacking that PKR has taken in the last year. (As per Veon, the average PKR/USD rate stood at Rs139.7 in 1QCY19, up 25 percent from Rs111.4 in 1QCY18). Consequently, in dollar terms, Jazz’s revenues were down 2 percent to $362 million last quarter, even as operating profit declined 5 percent to $123 million.
The 5 percent growth in dollar Ebitda, which came in at $183 million for the quarter under review, may provide some solace. Also, Ebitda margin inched up to 51 percent, from the cushion of 45 percent seen in 1QCY18. The Jazz management was able to somewhat shield Ebitda from PKR’s rays. But the HQ may note that Jazz contributed 17 percent to group revenues but a lower, 14 percent to group Ebitda.
Going forward, the going may get tough for Jazz, and also for other operators in Pakistan. For one, the apex court’s 2018 order on re-charge taxes, which had helped the industry generate more revenues from customers, have been withdrawn. This will directly affect top line. There is also the lingering issue of license renewal, which Jazz needs to get over with for its Warid business. If Jazz doesn’t accept the license-renewal price of $450 million, it will have to litigate the matter. But that will hurt business continuity.
If that matter is somehow resolved, lying in wait is a slowing economy and rising inflation. The deadly combo will put pressure on telco’s directly through increase in operating costs and indirectly through a fall in consumer confidence. And lastly, all of the above will be made worse by a gradually depreciating PKR, which will offset any operational gains and set the sponsor’s dollar returns further back. Already, most regions where Veon operates have currencies that are gradually giving in to the greenback. Good luck!
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